To start with introduction we will first know about some keywords and their explanation and differences.
CATEGORIES OF SHARE CAPITAL:-
1)Called up Capital:-Called up Capital is the part of issued capital which has been called by the company for subscription. Thus, the amount of share capital which the shareholders are in an obligation to pay , but have not paid, is referred to as called-up capital. Share capital covers all funds which the company has raised in exchange for shares of either common or preferred shares of stock.
2)Un Called Capital- Capital that a business has in the form of shares that shareholders haven’t fully paid for.In simple terms Un Called Capital is the part of issued capital which has not been called by the company.
3)Paid-up Capital- It is a part of Called up Capital which is actually paid by the public. Paid-up capital is produced when a business sells its shares to buyers on the open market, typically through an initial public offering (IPO).The funding for paid-up capital generally comes from two basic sources one is the par value of stock(Par value is the amount specified in a corporation’s charter for a single common share) and the other is the excess capital(The excess of a company’s liabilities over its productive capital, or the plant, equipment, materials, and stocks of unsold goods and semi-fabricated products that a firm holds, is referred to as excess capital in this context).
4)Un-paid Capital-It is a part of called-up capital which is not paid by the public. Unpaid share capital is the state in which none of the moneys owed for an allocation of issued shares have been paid.
5) Authorized Capital: The amount of share capital that a company is permitted to issue by its memorandum of association is known as authorised capital. The amount of capital that is allowed to be raised by the company is set down in the memorandum of association. It is also known as registered or nominal capital.
6) Issued Capital: This is the portion of the authorised capital, including the shares assigned to suppliers and signatories to the company’s memorandum, that is actually made available to the public for subscription. Unissued capital refers to authorised capital that is not made available for public subscription. Unissued capital might eventually be made available for public subscription.
The main difference between the called-up share capital and paid-up share capital is that, when speaking about the paid-up capital, it remains already paid in full by the investors whereas called-up capital is the one where payment is still not made though it has been requested by the issuing entity.
On Application: The total amount paid in a series of instalments is the contribution to the share capital and should finally be credited to the share capital. However, initially separate accounts are formed for each instalment out of convenience. The application fee and any additional funds are placed with a designated bank in a special account that has been set up for the purpose.
On allotment: The directors of the company continue to make the share allotment once the required minimum subscription has been obtained and certain legal requirements regarding the allotment of shares have been properly completed. A contract between the corporation and the applicants, who are now the allottees and take on the status of shareholders or members, is implied by the allotment of shares.
On calls: Calls are essential for fully paying up shares and getting the entire share price from shareholders. The directors have the right to request the remaining amount on shares as and when they decide to do so in the event that shares are not fully called up until the end of allocation. Another possibility is that the timing of the shareholders’ calls will be decided at the time of the share issuance and will be disclosed in the prospectus.
SECTION 50- COMPANY TO ACCEPT UNPAID SHARE CAPITAL,ALTHOUGH NOT CALLED UP
Under section 50(1) of Companies Act,2013, if a company is authorized by its articles, may accept the whole or part of amount which is unpaid from any member even if no part of that amount has been called up. Further section 50(2) specifies that a member of the company limited by its shares is not entitled to any voting rights in accordance of the amount paid by the member under sub-section(1) until the amount has been called up.Thus this article permits the company to accept advance subscription. However, in case of advance subscription i.e payment of amount before it is called up, the member of the company limited by shares would have no voting rights on advance subscription till the amount is duly adjusted. Calls on shares of the same class must be made on an equal basis, according to Section 49 of the Indian Companies Act 2013.When demands for additional share capital are made on a class of shares, they must be made uniformly on all shares belonging to that class.Shares with the same nominal value but different amounts of paid-up capital are not considered to belong to the same class for the purposes of this section. According to section 51 of companies act,2013 the company is permitted to pay proportionate dividends(A proportionate quantity of dividend shares determined from the last dividend share date till the conversion date is referred as proportionate dividend shares) in proportion to amount paid on each share, if it is authorized by its articles. So, advance payment will never result into increased voting rights but delayed payment may result in decreased voting rights.
Few judgements and related case laws are discussed below for better understanding of this regarding share and payment of ca[ital . The High Court and the Tribunal were mistakenly under the notion that a share cannot be held to have been issued to a person until a share certificate is handed to him in the case of SRI GOPAL JALAN AND CO. VS. CALCUTTA STOCK EXCHANGE ASSOCIATION LTD. This misunderstanding seems to be a direct effect of the Bush case ruling. The law on this subject is described as follows in Buckley On the Companies Acts, 13th Edn., It was said to have been ruled in Bush case that by the ‘issue’ of shares was meant the issue of the certificates for the shares. This, however, is a misconception. Depending on the context, the term “issue” with respect to shares might signify several things. The allocation of the share or the issuance of the certificate do not always signify the issue of the share. Although some legal act may not have been accomplished, the question may be whether or not the shareholder has been fully placed in possession of his share. Thus, shares that have been allocated but for which no certificates have ever been issued may have been issued, and conversely, shares for which an allocation resolution has been made may not have been issued.When the company is registered, the shares for which the memorandum of association has been subscribed are “issued.” The court of appeals’ decision in In re Heaton’s Steel and Iron Company ,that issuing certificates is not required in order to issue shares under Section 25 of the English Companies Act, 1867. In that situation, Brett, J., noted:”In the Bush case, the issuance of certificates was just accepted as proof of the moment at which the shares were issued, but this must not be interpreted to mean that shares are not issued until the issuance of certificates”.
This article deals with the calls and debentures section of company law which provides certain powers to the companies to accept advance subscription even during the application or during the allotment period. However as discussed above advance payment does not leads to increased rights. The company is permitted to accept the amount even if not called up for according to section 50.However along with giving powers and permission to the companies and corporate sector, the companies act never fails to give powers to shareholders and members of the company.
- 1.Unique Guru (Youtube channel)
- 2.Edu for all(Youtubechannel)
- 3. https://www.investopedia.com/ask/answers/073015/what-difference-between-calledup-share-capital-and-paidup-share-capital.asp
- 4. https://ncert.nic.in/ncerts/l/leac201.pdf
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